Relative strength for spotting leaders

The relative strength (RS) line is a tool used to compare a stock's price performance against a benchmark index, such as the S&P 500. A rising RS line indicates the stock is outperforming the index, even if the stock price is falling less than the index. Conversely, a falling RS line suggests the stock is underperforming. The comparison between market-cap weighted indexes and equal-weighted indexes is another method of gauging relative strength. Market-cap weighted indexes give more weight to larger companies, while equal-weighted indexes assign the same weight to each company, regardless of size. A rising ratio of market-cap weighted index to equal-weighted index suggests larger companies are outperforming. Some analysts view the outperformance of large caps as a sign of market weakness. Equal-weighted stocks have historically outperformed market cap-weighted stocks in 8 out of 10 decades but have also exhibited higher volatility. The relative performance of these indexes can fluctuate due to changing market conditions.